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The SFO and Barclays: legal points for business to consider

After a five-year investigation, the SFO has charged Barclays PLC and four former executives with conspiracy to commit fraud and the provision of unlawful financial assistance. The charges relate to the bank's fundraising in Qatar in 2008, as it sought emergency fundraising in the financial crisis to avoid a taxpayer-funded bail-out like that taken by two of its biggest British rivals, Lloyds and Royal Bank of Scotland. The SFO investigated transactions between Barclays and Qatar; including the exact nature of loans made and whether any payments were intended as undisclosed inducements.

The criminal charges are the first time that any of the banks or senior staff have been charged in connection with the banking crisis. They come just weeks after Prime Minister Theresa May outlined her intention to abolish the SFO; although the Conservatives’ unconvincing election victory appears to have put that idea on hold.

Does the SFO feel emboldened by Theresa May’s failed gamble to go to the country that led to a minority government? Or is it feeling more determined due to its lack of success convicting Barclays traders over Libor a couple of months ago? Either way, the SFO is showing its strength in a case that could be a defining moment for it.

But the decision to charge must also be seen as a warning to many in business about the SFO’s determination not to let an investigation drop: no matter how complex or how old the case is or whether it involves an organisation they have previously failed to secure convictions against.

We will have to wait to see how this concludes. In the meantime, there are lessons to be learned by corporations and by general counsel; who may have some anxieties about their company’s past behaviour.

Co-operation

The SFO has repeatedly stated that it will consider entering into a Deferred Prosecution Agreement (DPA) with a company, if that firm self-reports the wrongdoing and co-operates fully with the investigation.

A DPA can be vitally important for a company as it means it is not prosecuted. This is what happened with Rolls-Royce and Tesco. But there has to be real and genuine co-operation.

Barclays neither reported the wrongdoing, nor went out of its way to assist with the investigation. Contrast this with Rolls-Royce: it did not self-report its wrongdoing but it dismissed senior executives and co-operated fully with the SFO – an approach that was praised in the final ruling supporting a DPA – and thus avoided being in the dock, despite the massive corruption it had confessed to.

The Rolls-Royce DPA – and the lack of one for Barclays – indicate just how important it can be to know exactly how and when to co-operate with the investigators.

Admissions

Both Rolls-Royce and Tesco were granted DPA’s after they admitting wrongdoing. Barclays has so far admitted nothing. As a result, there has been no prospect of the bank obtaining a DPA.

Mounting a robust defence of your actions is an essential part of any investigation. But this must be balanced against an awareness of how to respond to allegations in a way that will obtain the best possible outcome.

If in doubt, seek specialist legal advice to navigate a course that will involve accepting what liability you believe to be right while minimising the penalties. It’s obvious that once a person or a firm is charged then legal advice and representation must follow. But it’s the legal advice engaged at the very earliest stage that saves the day for corporates.

Personnel Changes

The prosecution of Barclays and its executives indicates that changing those at the top of a company is no guarantee that a DPA will be granted if wrongdoing has been committed.

Tesco and Rolls-Royce made major personnel changes during their engagement with the SFO investigations and, in granting them each a DPA, the SFO accepted that they were no longer the same companies.

Barclays has undergone a similar change but so far this has counted for little with the SFO – due, in no small measure, to the factors outlined above.

Corporate Versus Individual Liability

With both Barclays and former employees being charged, the case is now certain to focus on the issue of an organisation’s corporate liability versus the individual liability of those working for it.

In such prosecutions, an ex-employee’s defence might include the suggestion that that individual was not a key decision maker. Or they may argue that he/she had advised the ‘company’ against a particular action but were told to do so anyway – they were just following company orders. These are the in-built tensions that exist when a corporate and individuals are prosecuted.

Understanding how to recognise conflicts - and what may become a conflict issue - is all part of delicate legal judgements that should be being made as early as possible.

Internal Investigations

Barclays did not self-report its perceived wrongdoing. Instead, it reacted to the allegations by refuting them and unsuccessfully contested the disclosure of 100,000 relevant documents; arguing they were privileged.

Pre-charge challenges are very often advisable. But, in a case that might be disposed of by way of a DPA, it hardly shows co-operation. That is why the strategy has to be decided at an early stage when potential criminal wrongdoing is identified. Decisions have to be made on disclosure and self-reporting.

The only way those decisions can be properly made is by the corporate conducting its own internal investigation first, in order to really understand what is at stake. However, as the recent SFO v ENRC High Court case has shown, care has to be taken here as legal professional privilege might not extend to certain discussions between the company and its lawyers.

That is a complex issue but the reality is that there is no getting away from the fact that self-reporting raises all sorts of complications. Ultimately though, if done properly and professionally, it is also the best way to deal with skeletons in the cupboard.

Directing Mind and Will

The SFO will be aware that if the offences had been committed after the Bribery Act 2010 came into effect, it could have prosecuted Barclays for failing to prevent bribery; under section 7 of the Act.

This would have required Barclays to show it had adequate procedures in place to prevent the bribery and, as it is a strict liability offence, the SFO would not have had to prove the offences were carried out by the bank’s "directing mind and will".

It remains to be seen if the SFO can show that the alleged Barclays offences were carried out by the "directing mind and will" of the company. This can prove difficult with companies that have complicated management structures.